US stocks continued to shake off their September sluggishness last week, en route to setting a new all-time high. The S&P 500® The index rose another 1.6%, taking its October gain to 5.5%, offsetting more than September’s 4.8% drop, and leaving the index 21.0% higher on the year. Ahead of a split selloff on Friday, it set a new closing high of 4549 on Thursday. Particular strength was seen in real estate, healthcare and finance, but there was general strength in all areas.
These higher prices were fueled by strong third quarter earnings reports. About 25% of S&P 500 companies have released results to date and, according to Factset, a record percentage has exceeded expectations. As a result, the aggregate expected earnings growth rate for the third quarter climbed to 33%. Financial stocks have been the main driver of the better-than-expected results so far, although all eleven sectors are showing positive year-over-year growth. In the coming week, FAANG stocks will be in the spotlight, starting with Facebook on Monday, followed by Alphabet, Microsoft, Amazon and Apple. But they are not alone. In total, about a third of the companies in the S&P 500 will release their results this week.
Strong economic data contributing to equity gains, although supply chain issues remain
Generally strong economic data also contributed to equities’ gains, although there is still plenty of evidence of supply chain constraints. Initial jobless claims fell for the third week in a row to a new recovery low last week. Continuing claims fell for the fourth week in a row, also to a new recovery low. Existing home sales were stronger than expected in September and leading indicators rose for the seventh consecutive month, although the pace slowed. And the composite flash PMI rose in October on the strength of the service sector. Although manufacturing slowed down slightly, it remained at a solid level. But problems in the global supply chain were evident in September as industrial production fell unexpectedly after a downward revision from August. There was also weakness in housing starts and permits, although the National Association of Home Builders (NAHB) index rose.
Bond yields also continued to climb last week. The yield on the ten-year note rose six basis points to 1.63%, but not before hitting a six-month high of 1.70% on Thursday. The yield on the more policy-sensitive two-year note also rose six basis points to 0.46%, its highest level since the start of the pandemic.
The economic calendar for the coming week will provide a good overview of the impact of the Delta variant and its supply chain issues associated with the anticipated release of Q3 GDP. As a result, expectations had been systematically lowered throughout the quarter, with the consensus currently expecting an increase of just 2.8%, less than half the growth rate expected at the start of the quarter.
Investors are keeping tabs on consumer sentiment and policy discussions this week
The PCE deflator is also scheduled for September. The headline rate and the base rate are expected to increase slightly from 4.3% to 4.4% in the overall rate and from 3.6% to 3.7% in the base rate. Personal income is expected to decrease, while expenses are expected to increase. Reports on consumer confidence and sentiment are expected to be stable, while September’s durable goods orders are expected to decline, hampered by the same supply chain issues seen elsewhere. New and pending home sales are expected to increase.
Political discussions will also be in the spotlight this week. Reports suggest Democrats are closing in on a deal on a social infrastructure package that would allow a House vote on the physical infrastructure bill that has already been passed by the Senate, before Friday expires. the extension of the Highway Trust Fund. And in the background lurks the next Fed meeting next week in which it is widely expected to announce the start of cutting its bond purchases.
The United States will be joined this week by third-quarter economic results from Japan on Thursday and the eurozone on Friday. Growth in Japan is expected to increase by 1.3%, as in the second quarter, while growth in the euro area is expected to total 2.1%, compared to 2.3% in the second quarter.
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“FAANG” is an acronym that refers to the shares of five major US technology companies: Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (formerly Google)
The National Association of Home Builders (NAHB) Index is based on a monthly survey of members belonging to the NAHB. The Index is designed to measure sentiment toward the US single-family housing market and is a closely watched indicator of the outlook for the US housing industry.
A 10-year Treasury bill is a debt obligation issued by the United States government that matures in 10 years.
The PMI flash services is based on approximately 85 to 90 percent of total PMI responses each month. It is designed to provide an accurate advance indication of the final PMI data. As flash services PMIs are among the top economic indicators of each month, providing evidence of changing economic conditions ahead of comparable government statistics, they can have a significant effect on forex markets.
The personal consumption expenditure (PCE) Measures of the prices that people living in the United States pay for goods and services. The PCE price index is known to capture inflation (or deflation) across a wide range of consumer spending and to reflect changes in consumer behavior
Past performance is no guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
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